CBO's Wake-Up call

[Pangloss]

In 2008 the debt to GDP ratio was 40%. The GDP still hasn't been recalculated, so far as I know, and was widely reported last year to be projected to fall because of the economic crisis.

 

According to a CBO report released February 1st, it will rise to 90% by 2020. The CBO even conveniently breaks this down by household:

 

* When Obama entered office, $56,000 per household. (Debt=$6.3 tril)

* After one year of Obama in office; $72,000 per household. ($8.2)

* In ten years .. by 2020; $170,000 per household. ($20.3)

(Edit: Some of these figures seem to be disputed by other sources. See discussion beginning around post #8.)

 

The problem is that it will take so long to balance the budget that another $14 trillion will have been added to the negative side of the balance sheet.

 

This will have an adverse effect on the economy even if growth stays positive:

 

For countries with debt-to-GDP ratios "above 90 percent, median growth rates fall by 1 percent, and average growth falls considerably more," according to a recent research paper by economists Kenneth S. Rogoff of Harvard and Carmen M. Reinhart of the University of Maryland.

 

This quote from the White House's own Director of the Office of Management and Budget is interesting:

 

One economist concerned about unsustainable fiscal policy in the out years is OMB Director Peter R. Orszag.

 

"Deficits in the, let's say, 5 percent of GDP range would lead to rising debt-to-GDP ratios in a manner that would ultimately not be sustainable," Mr. Orszag acknowledged to reporters on March 20, 2009, two months after the administration entered office.

 

Now, by the "out years" he's talking about following the projected economic recovery. But that figure is interesting. It happens to be half the current ratio of deficit to GDP ($1.5 trillion on a $14 trillion economy). But of course, again, that's assuming that GDP hasn't actually fallen.

 

I just hope we don't have any more trillion-dollar spending programs headed down the pike. Maybe health care will work out, but only if we really focus on tightening the belt and curtailing spending.

 

http://www.washingtontimes.com/news/2010/mar/26/cbos-2020-vision-debt-will-rise-to-90-of-gdp/

Edited April 1, 2010 by Pangloss
added note about questions over figures

[jryan]

It's interesting also that the predictions of the end of the recession, driven largely by jumps in GDP, were themselves driven largely by a drop in the trade deficit... which was itself driven by a weak dollar.

 

2009 Exchange rates

 

Somewhat ironically, the trade deficit will most start to grow again in Q1, and continue in Q2 due to the rebound of the dollar on the world market.

 

It seems somewhat counter intuitive that a strong dollar is bad news, but for an economy banking on the recovery signals on Q3&4 of 2009, it could be very bad. A drop in exports will lead to a drop in GDP growth (though probably not an actual decline) in Q1 of 2010, and a possible actual return to declines in Q2.

 

The timing for this couldn't be worse, as there is also the oncoming wave of foreclosures on the horizon... this time not due to stupid loans, but rather lack of jobs. Obama has proposed another stupid fix for this.. pinning the loan payment to 31% of income for 6 months... but this will just take the burden off of the home owner and dump it on the banks, who will respond, as they did in 2009, by slowing lending to cover short term losses.

 

So look for another round of bank failures, housing price declines, and drop in GDP in Q2 and Q3 of this year.

 

So the CBO, to bring my point back to relevance, is banking on poor estimates on both ends of their calculations.

[SH3RL0CK]

...if we really focus on tightening the belt and curtailing spending.

 

What are the odds of this happening? Given the past history of our leaders being unable to curtail spending and the recent history lessons of European nations (Greece for example) I'm not encouraged.

[Mr Skeptic]

I suspect that for next election, or the one after that, the national debt will play a prominent role. The Democrats will have to explain why the debt is so high, and the Republicans will have to explain why they opposed PAY-GO.

[bascule]

I suspect that for next election, or the one after that, the national debt will play a prominent role. The Democrats will have to explain why the debt is so high, and the Republicans will have to explain why they opposed PAY-GO.

 

The Republicans need to explain what they'll do differently versus the last time they were in power and caused the debt to skyrocket.

 

Sometimes I get the feeling that Republicans like Reagan and Bush drove the debt so high specifically so Democrats can't create any new social programs because the government is broke :/ But that would be attributing malice where incompetence suffices...

[Pangloss]

Do you feel that if the country were doing better financially it should be implementing more social programs?

[jackson33]

bascule; The actual NDebt since Reagan had remained near 60-65% of the GDP. All this really means is expansion was keeping up with debt, or in the case of the Republican Congress in the 1990's, an actual surplus was attained, some older Bonds paid off, with nothing replacing them and in fact many were reduced to 3-5-10 years notes, where the norm had been 30 year T-Notes (much cheaper interest rates). I think Bush DID go back to 30 Year Notes after the Wars began, which would have some cum effect on current debt, but you couldn't get anyone to buy a short term note today, which wouldn't keep up with inflation.

 

Sometimes I get the feeling that Republicans like Reagan and Bush drove the debt so high specifically so Democrats can't create any new social programs because the government is broke :/ But that would be attributing malice where incompetence suffices...[/Quote]

 

Since your off on 'Conspiracy Theory' and I often think the same things (tech bubble burst for Bush), what about this; If Obama, does lose or chose not to run for a second term, he or his administration, might be setting up themselves up for a later run, many Obama's relatively young age today. The 22nd A only says "No person shall be *elected* to the office of the President more than twice" not when or how many times they can run. If and I believe they believe this, their plans for a Single Payer Universal Health Care will be accepted by the majority, at some point in the future (more possible, than not), he/they may not be very popular in 2013, but could possibly be by 2017 or 2021, as people become more dependent on Government.

 

I suspect that for next election, or the one after that, the national debt will play a prominent role. The Democrats will have to explain why the debt is so high, and the Republicans will have to explain why they opposed PAY-GO. [/Quote]

 

Skeptic; First, Grats on your new moderator status, you have certainly earned it. Maybe you can now promote your own 'One on One Debate' ideas with your new chat room....

 

I seriously doubt the actual national debt, will concern voters, other than how it effects the economy. On PAY-GO, remember they were simultaneously raising the Debt limit to 14.3T$, up 1.9T$ and over 4T$ what is was at FY end 2008. As for the republicans, they certainly had a couple good arguments. Any reduction in taxes would then have been (will be now) be supported by cuts elsewhere and as already seen, emergencies can include many things and not covered by PAY-GO.

 

The bill, which next needs approval by the House of Representatives and President Barack Obama to become law, would allow the debt to grow by $1.9 trillion to $14.29 trillion. Moderate Democrats and most Republicans had been wary of supporting the debt limit increase without stronger assurances that future spending would be controlled....

 

In addition, Republicans argued that the pay-as-you-go rule would make it difficult to approve new tax cuts, and Sen. Judd Gregg, R-N.H., the top Republican on the Senate Budget Committee, complained that Reid's plan was nothing more than a gimmick. Congress currently has weak pay-as-you-go rules, but routinely ignores them. [/Quote]

 

Read more: http://www.mcclatchydc.com/2010/01/28/83259/senate-votes-new-curbs-on-federal.html#ixzz0jmpvi5te

[bascule]

Do you feel that if the country were doing better financially it should be implementing more social programs?

 

If the programs are warranted and we can afford them, of course.

 

bascule; The actual NDebt since Reagan had remained near 60-65% of the GDP.

 

"since Reagan"... as in after Reagan left office, I guess? It was ~35% when Reagan took office, and rose from 60% to 70% under GWB.

 

The Reagan and GHWB years saw the most massive expansion of debt since World War II.

 

Since your off on 'Conspiracy Theory'

 

Yeah, my bad on that... I'm just really confused about the rampant hypocrisy among many conservatives who only seem concerned about the national debt when liberals are in power. It's okay when Regan and Bush(es) spend us into oblivion, but the moment the Democrats take control of the country the national debt suddenly becomes a huge concern.

[Pangloss]

"since Reagan"... as in after Reagan left office, I guess? It was ~35% when Reagan took office, and rose from 60% to 70% under GWB.

 

The Reagan and GHWB years saw the most massive expansion of debt since World War II.

 

Well hang on, I reported in the opening post that it was only 40% of GDP in 2008. I just took a quick look at the link I pasted there to make sure I read it right, and it says this (my bold):

 

That figure would equal 90 percent of the estimated gross domestic product in 2020, up from 40 percent at the end of fiscal 2008. By comparison, America's debt-to-GDP ratio peaked at 109 percent at the end of World War II, while the ratio for economically troubled Greece hit 115 percent last year.

 

Have I just misread something here?

 

I'm looking at the Wikipedia and it seems to have very different statistics in this article:

 

http://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms

 

That one suggests that debt grew from 57-69% during GWB. (Later it suggests that the increase was actually greater under Clinton, btw (14% vs 9%).)

 

But I wonder if the CBO is looking at it differently somehow, or if the Washington Times (not exactly known for accuracy and unbiased reporting) screwed it up somehow.

[bascule]

I was reading off a graph... a table of figures is probably a more accurate way to go

 

That one suggests that debt grew from 57-69% during GWB. (Later it suggests that the increase was actually greater under Clinton, btw (14% vs 9%).)

 

I'm having trouble interpreting that but the important numbers would seem to be:

 

Clinton: First term: +3.0%, 2nd: -9.8%

Bush: First term: +5.6%, 2nd: +6.3%

Edited April 1, 2010 by bascule

[Pangloss]

Well I wonder what the Washington Times was thinking there, and if they actually got that piece of information from the CBO somehow. But the other figures seem more consistent with earlier discussions we've had on this subject, so I'm going to assume they're more accurate and add a note to the OP.

 

Thanks.

[jryan]

You might find the answer in how they count borrowing against Social Security and Medicare. This is also a debt, but not always counted in public debt.

 

For instance, Clinton is considered to have balanced the budget and achieved a surplus in the last two years as president, but when you count the money borrowed from Social Security and Medicare he only squeaked out a surplus in one of the two years.

 

Still quite a feat, but it's a good illustration of how budget numbers change when you include the Medicare and Social Security debts for the given year.

 

Over all debt in those two is a mess though... I'll look it up when I get more time, but we have something like $107 trillion in IOUs in those programs.

 

Edit: Here is the depressing article I got the $107 trillion figure from.

Edited April 1, 2010 by jryan